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The London School of Economics has not suddenly stumbled into an unhealthy relationship with a particular national government: it was born with an unhealthy attitude to all Government with a capital G. And it will acquire health only when it adopts the non-negotiable position of every great university, namely to be independent of all external agencies, governments included.

The LSE was founded by Sidney and Beatrice Webb and George Bernard Shaw. All three were Lenin's useful idiots. The Webbs' books Soviet Communism: A New Civilization? (1935) and The Truth about Soviet Russia (1942) did not tell the truth about the new civilisation of Soviet Russia, nor did Shaw in his 1933 preface to On the Rocks, where he denied that there was starvation in Stalin's USSR: "the children were remarkably plump."

So we see that Anthony Giddens' recent statements about Mu'ammer Gaddafi ("cuts an impressive figure...genuinely popular") cleave only too closely to the spirit of the LSE's founders' earlier political pilgrimages.

Although the LSE has of course engaged academics who have certainly not been totalitarian apologists (Lionel Robbins, Friedrich von Hayek et al), the school's default setting has for too long been faith in the state. This was reinforced by the directorship of William Beveridge (1919-37), he of the 1942 report that seeded the welfare state.

Yet Beveridge advocated a very different welfare state from the one Labour created. Beveridge admired the private sector and applauded, for example, the "phenomenal growth of voluntary insurance against sickness" under which, by 1938, the UK's 1,334 voluntary hospitals received 59 per cent of their income from patients' fees. Beveridge wanted to restrict the state to underpinning care only for the poor, but Labour was determined to crowd out private welfare provision.

Equally, the 1963 Robbins report, which adumbrated the expansion of higher education in the UK, promulgated the introduction of student loans in language that is astonishingly current.

So we see that many LSE academics will today defend a state that is actually more corporate than the LSE's progenitors intended. But politicians and their clients love corporate states because those are the states that augment their power.

The LSE's faith in the corporate state was reinforced in 2001 by its victory over the Quality Assurance Agency. Back then, the QAA measured not only process (as it still does) but also outcome (which it no longer does). In an activity known as Teaching Quality Assessment (TQA), the QAA actually monitored teaching (shock horror!) and other academic activities directly. But the LSE condemned the TQA as an intrusion into its academic freedom.

After that condemnation, the QAA unravelled. Its chief executive resigned and the TQA was replaced by a regulatory "light touch". And although nothing was said, it was understood that the LSE's victory had been underpinned by the friendship between its director at that time, Giddens, and Prime Minister Tony Blair.

Although the TQA could indeed have been managed more sensibly, its replacement by banking-style regulation has been a disaster, and our sector's lowering of standards - as illustrated, for example, by grade inflation - has brought opprobrium down on us all. Yet the LSE saw its victory as a vindication of corporatism, so when the government later asked for a quid pro quo over Libya, the quo was indeed quidded (especially as the LSE wanted the money).

The LSE's greatest trahison des clercs has been its Webbian, Shavian insistence that higher education is a public good that justifies its dependence on the state. But look at the US, where the best universities, those of the Ivy League, are independent. It is state dependence - not independence - that leads to underfunding.

The Ivy League model is so nearly within our grasp - it demands only that our lead universities be permitted to sign financial memoranda with the funding council to receive solely the quality-related money from the research assessment exercise/research excellence framework - that if we summoned the political will, we could achieve it. But as the LSE showed in 2001, our sector can summon political will only to lighten regulation, not to seek independence.

Peter Sutherland, chairman of the LSE's governors, is an ex-chairman of BP, the company that - ever since the Anglo-American overthrow of Iran's Mosaddeq regime in 1953 on its behalf - has embodied the corporate state. Come on LSE, let Harvard University, not the third way, be your cynosure.

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